NEMT, taxi, limo, and all other public livery companies often face the situation when negotiating a contract with a vendor – the cancellation clause. What does it mean, and should you care?

Your insurance policy is between you (the transportation provider) and the insurance company. A cancellation clause in a transportation contract requires the insurance company to notify the vendor (a third party) prior to the policy being cancelled. Most clauses require 30 days’ notice, but in certain states this timeframe may be extended to 60 days. This clause can also require notification for nonrenewal, which would trigger if the insurance company continues the existing policy but does not intend to renew it.

Why is this a hard thing?

A cancellation clause is a perfectly reasonable request from the vendor’s perspective. They need to know if their transportation provider’s insurance ever goes away, and do not want to rely only upon the transportation provider to inform them. However, from the insurance company’s perspective, it adds a third party to the insurance policy and increases complexity in the event they ever need to cancel or nonrenew the policy. A cancellation clause in effect tells the transportation provider, “Change your insurance policy so that it requires I be notified in advance of your policy being cancelled for any reason.”

A cancellation clause is a perfectly reasonable request from the vendor’s perspective.”

Bottom Line

It can be done. However, not every insurance company will comply. Certificates of insurance, typically provided by your insurance agent, used to specify they would notify the vendor of any change in insurance. However, due to many court cases, the certificate of insurance now states notice will only be provided according to policy provisions. In other words, if it is not written into the policy, it will not happen.

What to do?

A cancellation clause in your transportation contract should not come as a surprise. However, before signing, provide the contract to your insurance agent and ask if your policy will be able to comply. For some insurance companies, this will be an easy request. For others, it will be an impossibility which may necessitate a change of insurance company. This is why you have an insurance agent – the only way to know is to ask them.